The Securities and Exchange Commission (SEC) is the government watchdog charged with oversight and policing Wall Street and the Big Banks. For years, it has been suspected that the SEC is less a watchdog and more of a trained housepet of the Big Banks. Now, that theory has been proven as Felix Salmon, finance blogger at Reuters, reports that the SEC has been caught colluding with banks of CDO prosecutions.

“Once again, the SEC has demonstrated fraud is cheep,” commented Peter Mougey, a partner with the Levin, Papantonio law firm and director of the firm’s business torts and securities litigation departments. “Most disturbing is the fact the SEC lied to the public about its results. The SEC made it appear it was settling one case for a substantial sum of money when in fact, Goldman was able to clean up dozens of investigations for the price of one. Whatever confidence we had in the SEC, which was not much to begin with, is now gone.”

The information was revealed via a Freedom of Information Act request filed by American Lawyer. The information gained indicates that the SEC colluded with Goldman Sachs regarding collateralized debt obligations (CDOs) in 2010.

For an explanation of how CDOs function and what they are, read Matthew Yglesias’s excellent explanation over at Vox.

In 2010, Goldman Sachs settled a lawsuit over the way it handled CDOs. The collusion occurred following that settlement. Goldman Sachs had, reportedly, 12 CDO investigations that it should have been prosecuted for. Instead, Goldman settled one of these cases and was given a pass on the remaining 11. No other lawsuits were filed against the bank by the SEC.

According to Salmon, “…Goldman might be equally culpable for 11 other deals, but the SEC quietly assured Goldman — but not the public at large — that none of those deals would result in any charges.”

So, the SEC has misled the public about the strength and veracity of its prosecutions of the big banks, in fact, it actively tried to convince the public that its settlements were harsher than they were. Remember, there is hardly a single major bank in the US that has not settled a CDO suit in a similar fashion to the Goldman settlement discussed here.

Congress needs to investigate the relationship between the SEC and these banks.

Each of the CDOs that weren’t investigated was backed by real people who lost money at the hands of these banks. It’s the SEC’s responsibility to defend and fight for them, not to befriend bankers.

Joshua is a writer and researcher with Ring of Fire. You can follow him on Twitter @Joshual33.